Friday, December 17, 2010

I was surprised when I read recently that Napoleon Hill, in his book “Think and Grow Rich” said that he looked at all the great entrepreneurs, and the one thing he found is that they all had a huge sex drive. On the business side, we all know that the sex industry is rife with entrepreneurs, so I wonder if there is a connection?

Implying a connection may be an over-simplification of Hill’s classic, but his chapter on “The Mystery of Sex: Transmutation” certainly goes into some depth about how the energy of the libido is often channeled by successful people to focus on achieving specific goals, creative, political, entrepreneurial or otherwise.

All this, and Hill wasn’t even writing about the entrepreneurs who founded and run businesses in the “exotic erotic” category. Considering that passion has always been a much vaunted trait for the founders of successful startups, it’s not hard to see a sublimated sexual drive at work.

In case you are assuming that this is an all male domain, a University of California survey not too long ago says that 70% of women check out pornography, 17% of women are addicted to pornography, and 13% of women check out pornography at work. And the number of women entrepreneurs in this industry is growing rapidly.

Let’s focus for a moment on the business elements of the porn industry, and what other industry startups and entrepreneurs might be able to learn from them. The underlying principle of any business -- whether it be online or offline -- is to build a business model that successfully generates revenue while limiting expenses.

In fact, this is one of the critical points to remember about the sex industry. You may not like the product it sells, but the fact is, the model used by the online pornography business is a proven commodity. For a very long time, pornography has proven to be successful in the offline world.

Online, the Internet is all about technology and using it effectively. And no one group has contributed more to refining Internet technologies than the porn industry. Developments in content creation, communications delivery, e-commerce, and security each underwent a trial by fire within the porn industry.

In the case of some technologies, such as streaming video, pornography delivery was one of the only initial places for its application. Not only did online porn entrepreneurs utilize some of these technologies, but they also understood their limitations and their business ramifications.

Successful porn entrepreneurs have pioneered new approaches to get people to give their credit card numbers and to visit their sites enough times to keep providing revenue. They introduced multiple interrelated web sites, cross-targeting, and exit interstitials well before any other online segment.

Although the online pornography industry has many helpful business practices for us to examine, it also has some bad business practices: things like spamming incessantly, having a billion exit interstitials on a site so it is impossible for someone to ever leave, and misleading people with "free" offers that still require payment via a credit card.

On top of all this, it turns out the adult entertainment industry is pretty much recession proof. Makes you wonder what kinds of innovations are going to flow down to us in the near future.

But I digress. Let’s get back to the concept of sex and the entrepreneur. You might assume that Hill’s concept of channeling sexual energy or ‘transmutation’ is a recent one, but he first published his classic book back in 1937, during the Great Depression.

Hmmm. I guess we all should take comfort in the fact that even though we live in a world of constant change, some things will always be the same.

Saturday, December 11, 2010

Taking other people’s money to fund your startup changes your life in ways you cannot predict. And many of those ways are negative.

I meet with dozens of entrepreneurs a week. No matter how they couch it, they are asking for money. They come to me wanting to know first, will I invest myself? Doubtful, unless I already know them really well, know the company really well, and have some spare cash. Those often don’t occur simultaneously.

Okay, then will I connect them to someone who will invest? At the very least (or perhaps it’s the very best), they ask me how to get ready for funding. What do they need to do?

I always tell them to forget it.

To someone laboring in a cash-strapped startup, money often seems to be the endgame. “When I get funded,” the entrepreneur thinks, “I can build a prototype, hire a development team, go to market, scale more quickly, and beat my competition.” All problems will go away.

Maybe. Maybe not. But there are some things that DEFINITELY come with other people’s money. They’re new and different problems.

A board. Many startups have an advisory board of sympathetic people with industry expertise, or people who enjoy mentoring, or people who donate a few services on the come. Once you take investment, you will also have a fiduciary board, with the responsibility of making the company successful. Some of those will be outside the company. Be careful they don’t outnumber your people. And that they don’t set your co-founders or key employees against you in meetings. If you can, keep an odd number of people on the board, people who support you, so the board won’t be deadlocked.

Deadlines and benchmarks. Few investors send you the entire check immediately. Most of them give you some money and withhold the rest until you have proven something. Those who give you money often take a board seat so they can watch you.

Financial controls and budgets. Most startups are terrible with systems for payables and receivables. But there’s an old aphorism that cash is King, and when you get a large sum, you think it will last forever, until it doesn’t. You have to make the money hold out until you have met that deadline, and if you miss the mark, you might never see the rest, even though the problem that kept you from meeting it was out of your control. It’s funny how investors can forget everything from technical glitches to supplier problems, to the earthquake that destroyed your factory.

Strange course corrections. Yes, it is now in vogue to say your startup can, or did, pivot. But when your investors decide that you are going to pivot and you don’t think that’s the right direction, the wrong investor can force you in a direction you didn’t want to go in, wasting time and money. Much of this depends on how “smart” the money is about what you are doing. Don’t ever take dumb money, even if you are starving.

Demands on your time. Investors are a time suck, because they need to be handheld. The worst investors are small investors. If you raise an angel round consisting of five investors who put in $100K each, that’s five people you have to answer to. Five phone calls every time things change direction, or something bad/good happens. That’s why there is an entire industry built around “investor relations.”

An early exit on your part. I have actually known one guy who has been ousted from the CEO job in not one, but two of his own startups, by investors who either wanted to bring in their own guy or even their own team.

I have known more than one who has been shuffled to another position whether for the right or the wrong reasons. Often these shufflings are good, because they bring in experienced management. But sometimes they bring in management with no industry expertise, and they destroy both morale and your vision.

Remember “The Social Network” movie about Facebook? Remember what happened to the alleged co-founders when Peter Thiel came in? Well, some of the people who considered themselves co-founders suddenly found out they weren’t!

Moral: Before you decide that it’s absolutely necessary to take outside investment, explore all the possible ways you can partner, outsource, affiliate, collaborate, or…heaven forbid, get customers.

Today’s article is presented by the founder of Stealthmode Partners in Phoenix, Arizona. She is a true angel investor, and has helped package and secure funding for many high-tech startup companies in the area. She has also created positioning and marketing strategies for dozens of growth companies. You can contact her directly at francine@stealthmode.com.

Friday, December 10, 2010

It seems like only a few months ago when I wasn’t sure if Twitter was relevant to my business, or if it would be a waste of time. Now I have over 280,000 followers on Twitter as StartupPro, and the business is fun as well as profitable. I’m now convinced that any entrepreneur can use it to kick-start their business, and build their brand as well.

First, I’ll try to answer the most common question I still get from business people “What is Twitter, really?” For business people, it’s a way to put out “sound bites” or tiny ads on the Internet, much like you see them in the mainstream media on TV, but without the cost, to your prime audience.

Actually they are “txt bytes,” like cell phone text messages in length, and they are broadcast to all your followers, or directed at select recipients. People can respond in the same fashion with personal requests or general comments. The important responses are real “business leads.”

A lot of people are doing some very innovate things with Twitter. I won’t cover those here, but I’ll offer some practical tips to get you started:

Offer something of value. Make the relationship a win-win. That means give before you expect to get – free advice, special promotion, pointer to useful information, or sometimes just friendly conversation. Show that you are a real person, sincere and trustworthy.

Search tweets for business leads. With Twitter Search, and a host of free tools on the Internet, you can mine the universe of all tweets for people needing your product or service. Set up filters to find them, and follow-up diligently and politely on every lead.

Use free tools to improve efficiency. Twitter’s native user interface is arcane. Use tools like TweetDeck to set up your control room, SocialOomph to spread out your responses, and WeFollow to find key players in your domain. There are many others.

Create separate account for business. If you like Twitter for personal notes to your friends, use another account for business activity. Your business account should have a name, picture, and tone that reflects your business brand and logo.

Become an authority in your area. One of the challenges of buying things on the Internet is to identify the quality sources from the scammers. Use Twitter to personalize your business, knowledge, integrity, and your leadership. People still buy from people.

Stay top-of-mind with experts. Seek them out, offer interesting links, respond to tweets, and post thoughts for conversation at least a few times a day. Twitter is not like email, where people diligently save and respond to every message. Stand out in the stream.

Follow potential clients. That’s how you tell your potential clients and customers that you exist. They will see you following them, check out your profile, and if you have something they can relate to, they will follow you back. This is “pull” marketing.

Increase size and quality of following. Never stop working to increase your following, by finding others, and improving your offering. A larger following means more credibility, which iteratively attracts more followers. Don’t be afraid to un-follow people who don’t fit.

Re-tweet for double impact. Adding ‘RT @username’ in front of the original tweet forwards it to your followers, and is a double win, if used selectively. It improves your value to your followers, and increases the audience and credibility of the original sender.

Cross link all your web profiles. Make sure people can find you from all directions on the Internet. Your website should have a link to your blog, your Twitter profile, LinkedIn profile, Facebook, and vice versa. This also improves your Google search ranking.

Twitter is merely a constant stream of absolutely current public communication. The good news is you can turn it on or off as often as you like, and mine the database at very low cost for useful information. Even big companies like Dell and HP use it to find customers, and claim million dollar returns. It’s a valuable resource for every startup. Tweet me if you need help.

Monday, December 6, 2010

As an angel investor who has considered hundreds of startup opportunities, the concept of a value proposition may be the most misunderstood and taken for granted element that I see in newly formed startups. While entrepreneurs freely throw around the term “value proposition,” they rarely offer a thoughtful explanation for the “value” their business is providing and, more importantly, an understanding of who their real customer is and what valuable benefit their customer perceives they are receiving.

To address this gap, I’d like to discuss a basic value proposition definition below.

The value proposition is a short statement that clearly communicates the target customer, the customer’s problem and the pain that it causes, the unique solution that addresses this problem, and the net benefit of this solution from the customer's perspective.

Let’s consider each of the four elements of the value proposition definition above:

The target customer. Many entrepreneurs quote a large market size and impressive dollars spent in the market, but not many entrepreneurs can name specifically who will buy the proposed product or service, and how many of these customers exist. To identify a target customer, it helps to document a customer profile statement, identifying all of the traits known about the customer and what makes them different and unique from the larger market population. Out of this exercise comes a clearer understanding of what makes them a “target” customer. It’s not uncommon that a company serves more than one target customer, leading to a customer profile for each type.

The customer’s problem and the pain that it causes. Entrepreneurs should clearly articulate the customer’s problem that they are addressing in layman’s terms. The problem definition should also include a description of the level of pain it causes. This step is often overlooked, as entrepreneurs frequently assume a pain level that is greater than actually exists for the customer. This hopeful thinking comes from a lack of study and the development of empirical evidence that supports the relative importance of the painful problem. While the pain level can be expressed in dollars, what matters here is the extent to which the target customer desires that the problem be solved relative to current solutions. This step is critical to the potential of the startup enterprise. The more painful the unsolved customer problem, the greater the opportunity is for a startup’s success. Overestimating the pain level of a customer problem causes time, money and talent to be spent on a mission that leads to disappointment and frustration.

The unique solution that addresses this problem. Here, the startup is addressing the core purpose of its new business. What makes the solution worth pursuing? Why is the venture worthy of investment? What has the startup discovered that others in the market before it have missed? When its unique solution solves a customer’s painful problem better than all other available options, the startup has successfully cleared an important early hurdle to a successful venture. Again, evidence here is key. Demonstrating that a customer exists with a painful problem that the company solves better than anyone else makes for a compelling startup beginning.

The net benefit of this solution from the customer’s perspective. Here is where true potential is discovered. First, value is strictly perceived in the eyes of the customer. If the startup sees its solution as very valuable, but the target customer doesn’t, there is no foundation on which to build a company. Second, the benefit of the solution must be weighed against its cost and compared to all other options available to the customer. This is a critical element of understanding in considering growth potential and ultimate market capacity.

The value proposition is a primary foundation characteristic that I consider as an angel investor. When starting a new enterprise, entrepreneurs should offer a strong value proposition case, one that includes empirical evidence that demonstrates you know who your customer is, that they have a painful problem worth solving, and that you offer a unique solution that they perceive provides more net benefit than other available options.

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Today’s article is presented by my friend Joseph A. Bockerstette, now living in Phoenix, Arizona, an active investor, business advisor, and a founding member of the Main Street Venture Fund. You can contact him directly at jbockerstette@me.com.